Should I Sell or Rent My Home?

Renting vs Selling Your Home

Are you contemplating a move and wondering whether you should sell or rent your house? Both alternatives have advantages, but they also have disadvantages.

Below is a summary of key factors to consider when deciding whether to sell or rent a home. From the pros and cons of selling vs renting, to the cost and tax considerations, this article looks at the choice between selling your house or renting it after you move into a new home.

Pros and Cons of Selling vs. Renting

Pros of Selling

  • Make a Profit
  • Possible Tax Advantages
  • No Property Management

Cons of Selling

  • No Monthly Cashflow
  • No Debt Paydown by Renter
  • May Be Subject to Capital Gains 

Pros of Renting

  • Passive Income
  • Debt Paydown
  • Deductions and Depreciation

Cons of Renting

  • Property Management
  • Legal and Regulatory Concerns
  • May Not Make a Profit

Costs of Selling Your House vs Renting It

Home Selling Cost

A large amount of money is required to acquire a new house. Therefore, you may need to sell in order to obtain the money to purchase your next home. 

If selling with a real estate agent, you’ll likely pay a commission fee of 1%-6%. This can cost you thousands of dollars on your home sale.

There are additional costs when selling a home. To get a better idea of all the fees, check out our article: How Much Does It Cost to Sell a House?

Rental Property Costs

The cost of renting your property is a major issue that will influence your choice to rent or sell. 

The expense of maintaining a property is too much for many homeowners without large liquid cash reserves, and the risk of ‘renting gone bad’ is just not an option. 

Vacancies

Because there are times when rental homes are empty, tenants do not pay rent, or other circumstances impair cash flow, cash reserves are required for a rental house. 

However, mortgage payments must still be made. Damage and other issues that may arise with a rental property must also be taken into account. 

Eviction

If the need arises where you must evict a tenant, understand that this can be an expensive and time-consuming proposition. Additionally, the tenant may refuse to pay during this time, and you’ll be stuck with an empty house.

Home Damage

Another expense to consider is damaged property. 

Although landlords may protect themselves from these costs by collecting a security deposit; if the damage to your home is bad enough, you won’t be able to cover it with the deposit and will be forced to invest in repairs.

Taxes to Consider When Selling or Renting

Home Sale Taxes

When deciding whether to sell or rent, taxes are a crucial factor to consider. 

Capital Gains

When it comes to selling your home, you'll need to think about capital gains. There are tax discounts available for residences you've lived in for two of the previous five years, which might help you avoid paying capital gains taxes. 

If the house in issue was the principal residence for two of the previous five years, a married couple filing jointly may have up to $500,000 in tax-free capital gains, and singles can have $250,000 in tax-free capital gains. 

This may deter some individuals from renting out their properties since they may be exposed to these taxes if they decide to sell later. 

Unless you intend to move back into the property for two years after renting it out before selling it, the conventional rule is that if your residence has a substantial gain, you should sell it rather than rent it.

Rental Property Taxes

With renting out a house, there are additional tax implications to consider. 

It's crucial to keep in mind the problem of capital gains, as well as the fact that whatever value you've depreciated from your house will be taxed as well. 

Deductions

The various deductions involved with renting out a property, for example, may quickly remove any taxes on your rental income.

Out-of-pocket expenditures associated with owning and operating a rental property, such as property taxes and mortgage interest payments, are examples of expenses you may deduct. 

You may also deduct advertising charges, broker fees, and repair and maintenance costs from your taxes.

Depreciation

Another significant tax benefit connected with renting is depreciation. 

A residential rental property's recovery period is 27.5 years, which means you may deduct about 3.5 percent of the home's value from your yearly tax payment. 

When renting out a house, you cannot deduct the cost of upgrades, but you may recoup these expenses via depreciation. 

This may be a disadvantage for many homeowners since they bear the brunt of the expenditures upfront and can only deduct a tiny portion of them each year.

Renting Instead of Selling: The Pitfalls of Becoming a Landlord

The stress of being a landlord is a huge disadvantage that many individuals face while renting out houses. Being a landlord entails a great deal of responsibility, and there are many things to consider. 

Property Management

As a landlord, you're on call for repairs at all hours of the day and night—and they always seem to happen at the most inconvenient times! 

Some homeowners pay firms to manage their rental homes, but this may be an expensive service and eat any profit you were generating.

This would leave you with the responsibility of paying for repairs and upkeep on the property with no financial benefit. 

Should You Sell or Rent Your House?

When deciding whether to sell or rent my home, selling may be the best option if you need cash now for your next home purchase and don’t want to become a landlord. 

If being a landlord and owning a rental property is interesting to you, then renting out your home might be a good option. 

Before taking on the responsibility of managing a rental property, do some research and educate yourself about the process of renting a house, as well as the local rental rules. 

Keeping up with state requirements for rental properties might be difficult, but it is possible if you are committed to renting out your home. 

Making the Best Decision for You

Finally, the choice of whether to rent or sell your property is a personal one. The best method to make this decision is to balance out your scenario. 

The appropriate option for you may vary from the right one for your friends or family. Working with a real estate agent directly on this topic might also be advantageous. 

A professional's perspective may often assist you in making an educated choice concerning your specific circumstances.

Will You Sell or Rent Out Your House?

Consider the question, "Should I sell my home or rent it?" carefully and weigh the pros and cons that apply to you. Everyone’s situation is different, which is why it’s helpful to consult with a real estate agent and do your research when making a decision. 

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